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Part 1 of 2

SAN DIEGO—Tech start-ups face a great number of challenges, from staffing to budget constraints, but they are a vital part of San Diego's innovation economy. Downtown San Diego-based online-marketing technology firm and start-up Zeeto recently hosted the Future Forum Town Hall here, an event that brought together young Democratic members of the US House of Representatives focused on issues and opportunities for Millennial Americans; Kris Michell, president & CEO of the Downtown San Diego Partnership; and Caroline Stevens, also with the DTSP, to discuss how Downtown San Diego can help start-ups gain a foothold in the San Diego market. The event was attended by about 40 people, including employees from roughly a dozen startups in Downtown San Diego. In part 1 of this two-part story, we spoke exclusively with Michell and Zeeto's president and CEO Stephan Goss about the takeaways from the event. In part 2, we will sit down with Congressman Scott Peters, who spoke at the event, about what types of legislation can help give start-ups a leg up here.

GlobeSt.com: What were the most interesting points that came out of the Future Forum Town Hall meeting?

Michell: First of all, to have both Congressmen Scott Peters and Eric Swalwell there was fantastic. Eric comes from the Alameda County area, so he understands the innovation economy and is a Milllennial with a refreshing perspective. He was part of a group that started the Future Forum, a chair of young congressional men and women focused on issues for Millennials.

During the event, there was recognition that there are unique opportunities for start-ups, but also challenges. There was a great group of folks in the room, including representatives from Zeeto and other start-ups. This was a really good group of folks, some of whom don't have a company but are interested in starting a company. Many of the challenges they expressed were about getting loans. Many entrepreneurs go to school and amass student debt and then try to start a business because they're entrepreneurs, but how can you start a business when you're paying off student debt? Many have to find a job that may be soul crushing just to be able to pay off debt so they can eventually do what they want to do. Also, there are barriers to getting an SBA loan. It's so much easier to get student debt than to get an SBA loan, which is ironic because you're trying to help the economy grow and hire people. One solution might be to allow start-ups that want to take on new employees to do it without the employee tax.

There's also the matter of HB17 visas. Folks from all over the world are coming here to attend our world-class universities, and once we've educated them, they go back to their countries. If Google had started in Russia, what would have happened? We need to find creative ways to solve this. We don't even know what the new jobs of the future are going to be, but we have to figure out a way to be prepared for them. Jobs are shifting, so we need to be retraining to the new economy that will be emerging.
Goss: It was great to see where the Congressmen stood on the issues. It's good to have this conversation, and when issues come up, to discuss them. They were very focused on those issues; they love when ideas come from the constituency since we have more insights into what the problems are.

GlobeSt.com: What do tech start-ups need from the San Diego real estate community, and how can the real estate community forge a better relationship with these start-ups?

Michell: Creative-office space is number one. Companies are trying to attract the talent, and they're already out there looking for space, so they need creative landlords that will allow them in even if they're not creditworthy right out of the gate. Also, companies like Co-Merge, DeskHub and EvoNexus that provide interim space are really important for local start-ups and the economy.

The other thing is increased exposure and publicity for San Diego tech start-ups. The recent Link2Downtown program brought young college students into Downtown San Diego, and they were shocked that there were so many wonderful companies available to them. They need to know we are doing our best job at marketing what's already here and the markets to come. We were great about doing that in the life-science industry, and we are growing in the software industry—who knew the phone would be the most important device we own? The world is changing, people are getting rid of their landlines, and we need to be sure we're marketing ourselves not only as a chip maker, but also as a software hub where the best and the brightest are. Downtown is the best place for this to happen.

Stevens: At the Link2Downtown event, we asked the students which of them had thought about working Downtown in a start-up—these were all college juniors and seniors—and 90% said they hadn't considered it before, but now they want to. Start-ups made it so cool for them because they realized their college lifestyle doesn't have to end; they can continue it in a really cool environment.

Goss: We still consider ourselves a start-up at heart. The basic needs include a reasonable-length lease. If you're putting all your personal finances on the line, you can feel uncomfortable signing a five-year lease because you don't know if you'll even be around in six months. Even if you have a long-term lease, so many people are looking for space that you can break it no problem and someone will take the space. There are significant price problems. Anyone who is bootstrapping, like our company, isn't going to want to spend a lot of money on rent itself. On the other hand, hiring for a start-up can be challenging, so having a nice office that's not expenses is one of the challenges we run into.

We're running into that right now. Our firm is growing by about 100% a year. We have always been profitable in the five years we've been in business. We are looking to expand—we need about 20,000 square feet or 30,000 square feet—but we can't find it in Downtown San Diego. We have dogs in the office, and we wanted to look at high-rise options. Out of the 11 we called, only one allowed dogs at all. San Diego isn't really used to companies our size. We're hoping that once we got to this size it would be easier to find space, but it's actually harder because all the things we want aren't traditional things. We looked at low-rise buildings, but because we never really had industry in Downtown San Diego, the old buildings aren't really that plentiful; they were never built, so there's not a lot of availability in that space. So, we can't find a high-rise or a low-rise that will work, and rent has gotten really expensive Downtown. We've looked at some incubator space, but they don't allow dogs in the buildings. The market has the right intentions, but the processes and rules haven't caught up yet. It would be nice to have that available, so we have to change it.

GlobeSt.com: What else should our readers know about this topic?

Michell: A company that's no longer around used to have a saying: "We're quietly brilliant." I really believe that describes San Diego. We don't talk about it, we just do it. It's time for us to share our wonderful secret with the rest of the world: we are vibrant, thriving, innovation economy including science and technology, but also big data, analytics and software. It's always been that way here—we're just quiet. With companies like Craig Venter and Illumina here, they're sequencing the genome and will eventually get the whole DNA sequenced. As they do this, they will actually be able to come up with a composite picture of what we look like from when we are 20. There are implications for this all over the world.

Goss: Most of what happened yesterday was at the federal level, like student loans, education and immigration. I'm foreign and I'm applying for a visa—I could get kicked out of the country. There are issues affecting start-ups—not local issues, but more federal concerns. Our firm's entire business is national—we don't have any San Diego clients—so for a company like mine, the federal issues are bigger concern than the local ones.